Cleanaway Shifts its Attention to Sydney Assets Acquisition
- The Suez Recycling and Recovery Acquisition has been terminated
- Cleanaway will still go ahead with the Sydney Assets Acquisition
- The company expects growth to continue into FY21
Cleanaway Waste Management (ASX:CWY) has issued an update regarding its previously proposed acquisition of Suez Group’s(EPA:SEV) Australian recycling and recovery business. The original agreement was made on 5 April 2021 with a proposed acquisition price of $2.52 billion and dubbed the “Suez R&R Acquisition”.
Significantly, Suez was at the time in negotiations to be taken over by another French company, Veolia Environment S.A. (EPA:VIE), the tender offer had been filed on 8 February 2021. With this in mind, a clause was included in the Suez R&R Acquisition agreement that gives Suez the right to terminate the transaction should they reach an agreement in principle for a takeover before 6 May 2021.
Suez informed Cleanaway on 12 April 2021 that it had reached such an agreement with Veolia and the Suez R&R Acquisition is therefore now off the table, a disappointing result for Cleanaway. On a positive note, however, there was a contingency plan in place for Cleanaway to still acquire a set of post-collection assets in Sydney in the event that the original agreement was terminated. Nevertheless, Cleanaway enjoyed a significant rise in its stock price when the Suez R&R Acquisition was originally announced.
The consolation prize for Cleanaway consists of two landfills and five transfer stations collectively referred to as the “Sydney Assets”. The companies have agreed on a price of $501 million for the “Sydney Assets Acquisition”. The Sydney Assets recorded net revenue of $193.1 million and Earnings Before Interest Tax Depreciation and Amortization (EBITDA) of $72.9 million in CY20 and management is confident they will continue to generate attractive revenues in the future.
The timeline for the acquisition is unclear as it is dependent on the takeover of Suez by Veolia being complete, management has nonetheless tentatively predicted the purchase to be finalised in the second quarter of CY22. Cleanaway has stated that it will keep shareholders updated as more information becomes available.
Overall, Cleanaway has reported consistent growth over the past few years. Since 2015, the company has experienced a 22.7 per cent compound growth in Net Profit After Tax (NPAT) with similar results in its reported Earnings Per Share (EPS) and dividend payments. In its half-year results released on 19 February 2021, the company announced an NPAT of $79.0 million, representing a 6.5 per cent increase on the prior corresponding period (pcp). Earnings Per Share (EPS) was recorded at 3.8 cents per share, 2.7 per cent higher than the pcp.
Moving forward, while the company acknowledges the current uncertainty in the market, management is confident in its ability to achieve moderate gains in EBITDA for the full year FY21, noting that its solid NPAT and EPS figures were achieved despite the impact of the COVID19 pandemic.